Learn how parent company guarantees work in Turkish commercial transactions, when foreign parent companies may become liable for Turkish subsidiary debts, enforcement risks, governing law, arbitration, foreign judgments and cross-border recovery.

Foreign companies investing or trading in Turkey frequently operate through a Turkish subsidiary. The subsidiary may sign supply agreements, commercial leases, financing arrangements, construction contracts or major procurement agreements while the foreign parent company remains legally separate.

For the Turkish counterparty, that separation creates a credit risk.

A newly established Turkish subsidiary may have limited capital, few assets and little operating history. As a result, banks, suppliers, landlords, contractors and commercial partners may request a parent company guarantee before entering into a substantial transaction.

The commercial purpose is straightforward:

If the Turkish subsidiary does not perform or pay, the creditor wants access to the financial strength of the foreign parent company.

However, parent company guarantees create complicated questions involving contractual interpretation, Turkish guarantee law, corporate authority, governing law, jurisdiction, arbitration and cross-border enforcement.

A foreign corporate group should therefore never treat a parent guarantee as a harmless document issued merely to “support” its Turkish subsidiary.

What Is a Parent Company Guarantee?

A parent company guarantee is generally an undertaking by a parent company concerning obligations of its subsidiary.

For example:

A Turkish subsidiary enters into a EUR 10 million construction contract.

The Turkish counterparty considers the subsidiary insufficiently capitalized.

The German parent company provides a guarantee covering specified obligations of the Turkish subsidiary.

If the subsidiary later defaults, the counterparty may seek recovery from the parent company according to the guarantee’s terms.

The guarantee can therefore move risk from one legal entity within the corporate group to another.

Is a Foreign Parent Automatically Liable for Its Turkish Subsidiary?

Generally, no.

A subsidiary is normally a separate legal entity.

Ownership of shares in a Turkish company does not automatically make the foreign parent responsible for every commercial debt incurred by the subsidiary.

The situation changes where the parent company separately assumes contractual obligations.

A parent company guarantee can create precisely that exposure.

Share Ownership and Guarantee Liability Are Different

Consider a French company owning 100% of a Turkish subsidiary.

The subsidiary owes EUR 3 million to a supplier.

The French parent is not necessarily liable simply because it owns all shares.

But if the parent separately guarantees the EUR 3 million obligation, the creditor may potentially pursue the parent according to the guarantee.

This distinction is fundamental for international investors.

Parent Guarantee Versus Capital Commitment

A parent company may promise to provide additional capital to its subsidiary.

That is not necessarily equivalent to guaranteeing the subsidiary’s debt directly to a creditor.

The beneficiary, wording and legal nature of the undertaking matter.

Foreign investors should avoid informal language that unintentionally creates stronger obligations than intended.

Parent Guarantee Versus Letter of Comfort

International corporate groups sometimes issue letters stating that they “intend to support” a subsidiary.

Such documents may be called:

comfort letters, letters of support, keepwell agreements or patronage letters.

Their legal effect can differ significantly from an express payment guarantee.

The title of the document is not decisive.

Its substantive wording must be analyzed.

Parent Guarantee Versus Bank Guarantee

A bank guarantee is issued by a bank.

A parent company guarantee is issued by another company within the corporate group.

This difference matters because the creditworthiness of the security depends on the guarantor.

A guarantee from a financially weak holding company may provide little practical protection.

Parent Guarantee Versus Personal Guarantee

A parent company guarantee creates corporate exposure for the parent entity.

A personal guarantee creates exposure for an individual shareholder, director or other natural person.

These structures should not be confused.

For multinational corporate groups, a parent guarantee can often be commercially preferable to requiring executives to assume personal liability.

What Obligations Does the Guarantee Cover?

This should be one of the first questions answered.

A guarantee might cover:

only payment obligations,

all contractual obligations,

advance-payment refunds,

delay damages,

contractual penalties,

indemnities,

interest,

legal expenses,

or future obligations.

The wider the language, the greater the parent company’s potential exposure.

Avoid Unlimited Language

A foreign parent should be cautious about wording such as:

“Guarantor irrevocably guarantees all present and future obligations of the Subsidiary arising directly or indirectly from any commercial relationship with the Beneficiary.”

This can create exposure far beyond the original transaction.

A carefully negotiated guarantee should identify its scope.

Maximum Liability

Where commercially possible, parent guarantees should contain a monetary cap.

For example:

Maximum aggregate liability: EUR 5 million.

Without an effective limitation, the parent may face claims for principal debt plus substantial interest, penalties, damages and enforcement costs.

Define the Guaranteed Contract

The guarantee should identify the underlying agreement precisely.

Include relevant information such as:

contract date,

parties,

project,

facility,

purchase order,

and guaranteed obligations.

This reduces the risk that the creditor later argues that unrelated debts are also covered.

Existing Versus Future Obligations

A guarantee can potentially be drafted to cover future obligations.

Foreign parents should examine whether later amendments, additional purchase orders or increased credit facilities automatically fall within the guarantee.

A EUR 2 million exposure should not unintentionally become EUR 20 million.

Amendments to the Underlying Contract

Suppose the Turkish subsidiary originally signs a EUR 5 million contract.

The foreign parent guarantees performance.

Two years later, the subsidiary and counterparty amend the contract and increase its value to EUR 8 million.

Does the parent guarantee automatically cover the additional EUR 3 million?

The answer depends on the guarantee wording, governing law and circumstances.

Material amendments should therefore trigger a guarantee review.

Extension of Contract Duration

The same problem arises where a project is extended.

A guarantee originally expected to remain relevant for two years may continue much longer if the underlying project is delayed.

Expiry provisions should be drafted clearly.

Fixed Expiry Date

A foreign parent should consider a specific expiry mechanism.

For example:

The guarantee expires six months after final acceptance, subject to unresolved claims notified before that date.

This is considerably safer than an undertaking continuing indefinitely.

Guarantee Release

The document should explain precisely how the parent is released.

Possible triggers include:

full payment,

final acceptance,

completion certificate,

expiry date,

replacement security,

or written release by the beneficiary.

Avoid ambiguous provisions requiring the beneficiary’s discretionary confirmation long after all obligations have been performed.

Demand Requirements

The guarantee should specify what the creditor must do before claiming payment.

Must it first pursue the Turkish subsidiary?

Must it establish default?

Must it provide specified documents?

Must it obtain a judgment?

Or can it demand payment directly?

These differences radically affect risk.

Accessory Versus Independent Obligations

One of the most important legal questions is whether the parent undertaking operates as an accessory security obligation tied to the underlying debt or as a more independent guarantee obligation.

The legal classification affects available defenses and enforcement.

The document’s substance matters more than simply calling it a “Parent Company Guarantee.”

Why Legal Classification Matters

Suppose the Turkish subsidiary argues that it owes nothing because the counterparty itself breached the underlying contract.

If the parent’s obligation is closely accessory to the subsidiary’s debt, defenses relating to the underlying obligation may be highly relevant.

A more independent undertaking can create a different risk profile.

This should be analyzed before signature.

Corporate Authority of the Parent Company

The person signing the guarantee must have authority to bind the foreign parent.

The parent should check:

articles of association,

board authorization,

signature authority,

internal approval requirements,

financing covenants,

and applicable corporate law.

An unauthorized guarantee can create significant litigation.

Board Approval

For substantial guarantees, formal board approval may be appropriate or required under the parent company’s home jurisdiction or internal governance rules.

The board should understand:

guaranteed amount,

beneficiary,

underlying transaction,

duration,

and worst-case exposure.

Guarantees should not be issued informally by local managers.

Corporate Benefit

Another important issue is whether providing the guarantee serves a legitimate corporate purpose of the parent company.

Supporting a wholly owned strategic subsidiary may be commercially understandable.

Providing unlimited security for an unrelated or minority-controlled business deserves significantly greater scrutiny.

Minority-Owned Turkish Subsidiaries

Suppose a foreign parent owns only 40% of a Turkish joint venture but is asked to guarantee 100% of the joint venture’s obligations.

That creates a major economic imbalance.

The foreign shareholder should consider proportional guarantees, counter-guarantees or contribution arrangements with the other shareholders.

Counter-Indemnity From the Subsidiary

The parent may require the Turkish subsidiary to reimburse amounts paid under the guarantee.

However, this protection may have limited practical value if the subsidiary is insolvent when the guarantee is called.

A contractual reimbursement right is not equivalent to cash recovery.

Contribution From Other Shareholders

Where several corporate shareholders support a joint venture, internal agreements should determine how guarantee losses are shared.

For example:

Parent A owns 60%.

Parent B owns 40%.

The shareholders may agree internally that guarantee exposure should ultimately be allocated 60/40.

That agreement does not necessarily restrict the beneficiary’s rights unless the beneficiary accepts the limitation.

Governing Law

Parent company guarantees in international transactions should contain a clear governing-law provision.

Possible choices may include Turkish law, English law, Swiss law or another agreed system.

The choice can materially affect interpretation and enforcement.

Turkish Law Is Not Automatically Applicable

The fact that the subsidiary is Turkish does not necessarily mean every parent guarantee is governed by Turkish law.

The guarantee itself may contain a separate governing-law clause.

However, Turkish mandatory rules may still become relevant where enforcement is sought against assets in Turkey.

Guarantee and Underlying Contract Can Have Different Laws

For example:

Underlying construction contract: Turkish law.

Parent company guarantee: English law.

Arbitration agreement: Istanbul seat.

This type of structure is possible but requires careful drafting.

The interaction between the instruments should be considered before signing.

Jurisdiction Clauses

The guarantee should identify where disputes will be resolved.

Possible structures include:

Turkish courts,

foreign courts,

or arbitration.

A badly coordinated dispute-resolution structure can produce parallel proceedings.

Avoid Mismatched Dispute Clauses

Suppose the underlying contract requires arbitration but the parent guarantee selects ordinary courts.

The creditor may then pursue the subsidiary in arbitration and the parent in court.

This can create duplicated proceedings, additional expense and inconsistent findings.

Foreign companies should consider whether dispute mechanisms should be aligned.

Arbitration

Arbitration can be particularly attractive for cross-border guarantee disputes because enforcement may be required in several jurisdictions.

The New York Convention establishes an international framework for recognition and enforcement of foreign and non-domestic arbitral awards. UNCITRAL explains that its objective is to ensure that qualifying foreign arbitral awards are generally recognized and capable of enforcement in contracting states. (UNCITRAL)

Is Turkey Covered by the New York Convention?

Yes.

Turkey participates in the Convention framework, and Turkish enforcement practice for qualifying foreign commercial arbitral awards involves the New York Convention together with applicable Turkish procedural rules. (IBA)

This can be highly relevant where the parent company or its assets are located outside Turkey.

Arbitration Clause Must Bind the Parent

Do not assume that because the Turkish subsidiary agreed to arbitration, its parent automatically did too.

The parent company should expressly execute or otherwise become validly bound by the relevant arbitration agreement if disputes against it are intended to be arbitrated.

Corporate-group relationships alone should not be treated as a substitute for careful drafting.

Foreign Court Judgments

A creditor may instead obtain a judgment against the parent company abroad and later seek enforcement in Turkey.

Foreign judgments are not simply treated as domestic Turkish judgments without further procedure.

Turkish International Private and Procedural Law No. 5718 establishes the principal framework for recognition and enforcement of foreign judgments. Articles 50–59 govern foreign court decisions, and Article 50 provides that enforcement of qualifying final foreign civil judgments requires an enforcement decision from the competent Turkish court. (RM.coe.int)

Recognition Versus Enforcement

These concepts should be distinguished.

Recognition generally concerns giving the foreign judgment legal effect.

Enforcement allows coercive execution against assets.

If the creditor wants to seize assets in Turkey based on a foreign monetary judgment, enforcement is the critical issue.

Conditions for Enforcement

Turkish courts examine statutory conditions before enforcing foreign judgments.

Relevant issues can include finality, reciprocity, jurisdiction-related requirements, defense rights and public policy.

Accordingly, selecting a foreign court in the guarantee does not mean the resulting judgment will automatically be executable in Turkey. (IBA)

Public Policy

Public policy is one of the issues Turkish courts may consider in foreign-judgment enforcement.

The relevant question is not simply whether the foreign court applied Turkish law differently.

The statutory public-policy test concerns incompatibility with Turkish public order at the level required by the enforcement framework. (DergiPark)

Reciprocity

Reciprocity can also become relevant to foreign judgment enforcement.

Foreign companies should therefore analyze the specific judgment jurisdiction before assuming enforcement will be straightforward.

This analysis is best performed when drafting the guarantee, not after litigation has concluded.

Parent Has Assets in Turkey

If the foreign parent owns Turkish assets, enforcement strategy can become considerably more important.

Potential assets might include:

shares in Turkish subsidiaries,

bank accounts,

real estate,

receivables,

or other attachable property.

The existence and location of assets should influence dispute-resolution planning.

Parent Has No Assets in Turkey

If the parent has no Turkish assets, obtaining a Turkish judgment may only be the first stage.

The creditor may then need to enforce the judgment in the jurisdiction where the parent actually owns assets.

That country’s recognition and enforcement rules become critical.

Cross-Border Enforcement Strategy

Before accepting a parent guarantee, a creditor should ask:

Where is the parent incorporated?

Where are its significant assets?

Where are its bank accounts?

Does it own Turkish subsidiaries?

Which court has jurisdiction?

Will that judgment be enforceable where the assets are located?

Would arbitration provide a more portable enforcement mechanism?

These questions determine the practical value of the guarantee.

A Guarantee Is Only as Good as the Guarantor

A beautifully drafted guarantee from an insolvent parent provides limited protection.

The creditor should perform financial due diligence on the guarantor.

Review:

financial statements,

credit profile,

group structure,

existing debt,

material litigation,

and available assets.

Check Which Company Is Actually the Parent

Multinational groups can contain dozens of companies with similar names.

The contractual counterparty may say:

“Our global group guarantees the transaction.”

But which legal entity is actually signing?

The ultimate holding company?

A regional holding company?

A financing subsidiary?

A shell company?

The precise guarantor matters enormously.

Ultimate Parent Versus Intermediate Holding Company

Suppose the Turkish subsidiary is owned by a Dutch holding company, which is ultimately owned by a large American corporation.

A guarantee from the Dutch intermediate company does not automatically create liability for the American ultimate parent.

The creditor should identify exactly which entity has provided security.

Financial Statements

Where the guarantee is substantial, request appropriate financial information concerning the guarantor.

A EUR 50 million guarantee should not be accepted merely because the parent company’s website looks impressive.

Legal identity and financial strength must both be verified.

Guarantee Amount Versus Parent Net Assets

Consider proportionality.

A company with EUR 2 million of net assets providing a EUR 30 million guarantee may not offer meaningful economic security.

Financial analysis should accompany legal review.

Existing Guarantees

A parent may already have guaranteed substantial obligations of multiple subsidiaries.

This creates contingent liabilities that may not be obvious from a superficial review.

For large transactions, investigate the broader debt and guarantee structure where information is available.

Multiple Beneficiaries

A parent company may guarantee obligations to:

banks,

bondholders,

suppliers,

landlords,

project owners,

and joint-venture partners.

If several guarantees are called simultaneously, financial strength can deteriorate quickly.

Cross-Default Risk

The guarantee or financing documents may contain cross-default provisions.

A default under one facility can therefore affect other group financing arrangements.

Foreign parents should review financing covenants before issuing substantial guarantees.

Negative Pledge Clauses

Existing loan agreements may restrict the parent’s ability to provide new guarantees or security.

Issuing a parent guarantee without checking these covenants can trigger separate financing problems.

Sanctions and Regulatory Restrictions

Cross-border payments under a guarantee can potentially be affected by sanctions, foreign-exchange controls or banking restrictions.

International corporate groups should evaluate these risks where relevant to the jurisdictions involved.

Currency of the Guarantee

The guaranteed currency should be specified.

If the subsidiary’s debt is in euros but the guarantee cap is stated in another currency, exchange-rate disputes may arise.

The document should address conversion methodology where necessary.

Interest

Does the guarantee cap include interest?

Or does interest accrue outside the cap?

A EUR 5 million guarantee can become significantly larger during prolonged litigation if this issue is unclear.

Contractual Penalties

The parent should determine whether it guarantees contractual penalties incurred by the subsidiary.

This can materially increase exposure in construction, supply and distribution contracts.

Damages

Does the guarantee cover only invoiced debt or also damages caused by breach?

These are very different risks.

A parent guaranteeing “all obligations and liabilities” may face substantially broader claims than one guaranteeing a fixed payment obligation.

Legal Costs

The guarantee should specify whether enforcement expenses and legal costs are included within or outside the maximum liability.

Foreign companies should calculate worst-case exposure accordingly.

Demand Notices

A guarantee should specify:

where demands must be sent,

who must receive them,

what information must be included,

which documents must accompany them,

and when they are deemed received.

Technical defects in demand procedures can generate significant disputes.

Electronic Demands

If demands by email are permitted, specify the relevant addresses.

For high-value guarantees, relying on informal communications can create unnecessary evidentiary uncertainty.

Original Documents

Some guarantees may require presentation of originals.

The beneficiary should understand the procedural requirements before a crisis occurs.

A guarantee that cannot be called correctly provides weak protection.

Demand Deadline

If the guarantee expires at 17:00 on 31 December, a demand submitted on 2 January may be too late depending on the governing terms.

Calendar management is therefore essential.

Automatic Extension

Some guarantees include automatic renewal unless advance notice is given.

This can benefit the creditor but create long-term contingent exposure for the parent.

Both parties should monitor renewal dates.

Termination of the Underlying Contract

Does termination automatically end the guarantee?

Not necessarily.

The guarantee may continue to cover obligations arising before termination, repayment claims or damages.

The survival language should be reviewed carefully.

Advance Payment Refunds

A parent guarantee can be particularly valuable where a Turkish subsidiary receives a large advance from a foreign buyer.

If the subsidiary fails to perform, the foreign buyer may seek repayment from the parent according to the guarantee.

This can significantly improve recovery prospects.

Construction Projects

Parent company guarantees are common in large construction and infrastructure projects.

The employer may require the parent to guarantee:

completion,

delay obligations,

defect correction,

performance damages,

and other contractor liabilities.

The parent should understand that performance guarantees can create much broader exposure than simple payment guarantees.

EPC Contracts

EPC projects often involve very large liability caps.

A foreign parent should review the underlying EPC contract before guaranteeing it.

Never guarantee “all contractor obligations” without understanding the contractor’s contractual exposure.

Supply Contracts

A parent guarantee may support:

delivery,

advance repayment,

warranty obligations,

defect claims,

and damages.

Foreign suppliers should negotiate carefully where warranties continue years after delivery.

Commercial Leases

A foreign parent may guarantee rent for its Turkish subsidiary.

Long lease terms create significant exposure if the subsidiary closes operations early.

The guarantee should address termination, renewal and rent increases.

Bank Financing

Banks may request parent guarantees when financing Turkish subsidiaries.

These guarantees can cover principal, interest, fees, indemnities and enforcement costs.

Treasury and legal teams should review the entire facility package rather than the guarantee in isolation.

Share Purchase Transactions

Parent guarantees can also secure obligations under acquisition agreements.

For example, a parent may guarantee its subsidiary buyer’s deferred purchase-price obligations.

Alternatively, a seller’s parent may guarantee indemnity obligations.

The guarantee duration should correspond with the survival periods of the underlying claims.

Warranty and Indemnity Claims

An acquisition guarantee may remain relevant for years because tax, title or regulatory warranties can survive closing.

The parent should therefore map guarantee duration against each underlying obligation.

Insolvency of the Turkish Subsidiary

The purpose of a parent guarantee is often most visible when the subsidiary becomes insolvent.

The creditor may seek recovery from the parent rather than competing exclusively with other creditors of the Turkish company.

However, whether it can proceed immediately depends on the guarantee structure.

Insolvency of the Parent

The reverse risk also matters.

If the foreign parent itself becomes insolvent, the beneficiary may need to submit its guarantee claim within foreign insolvency proceedings.

This is why financial strength and jurisdiction matter as much as contractual wording.

Can the Parent Raise the Subsidiary’s Defenses?

Possibly, depending on the legal characterization and terms of the guarantee.

This is one reason why accessory and independent obligations must be distinguished.

The guarantee should expressly address relevant defenses rather than leaving the issue unnecessarily uncertain.

Fraudulent Demand

A parent may argue that a demand is abusive or fraudulent.

Such allegations require careful analysis under the governing law and guarantee structure.

They should not be assumed merely because the parent disagrees with the underlying claim.

Interim Measures

A guarantee dispute can involve urgent applications to protect assets or prevent prejudicial action.

Availability depends on the relevant court, arbitral tribunal and procedural framework.

The dispute-resolution clause should consider emergency situations.

Arbitration and Interim Relief

An arbitration clause does not necessarily mean that all access to courts for interim protection disappears.

The applicable arbitration law and institutional rules should be examined.

For high-value guarantees, this should be considered when drafting the dispute clause.

Enforcement of Foreign Arbitral Awards in Turkey

Turkey’s framework for foreign arbitral awards involves the New York Convention and International Private and Procedural Law No. 5718. For qualifying commercial awards rendered in Convention states, the Convention plays the central role in enforcement. (IBA)

The Convention is designed to facilitate recognition and enforcement while allowing refusal on specified limited grounds. (UNCITRAL)

Enforcement of Foreign Judgments in Turkey

Foreign court judgments follow a different framework.

Under Law No. 5718, a qualifying final foreign civil judgment requires a Turkish enforcement decision before coercive execution in Turkey. (RM.coe.int)

This distinction should influence whether international parties prefer foreign courts or arbitration.

Court Judgment Versus Arbitral Award

There is no universally superior option.

The correct choice depends on:

location of assets,

jurisdictions involved,

applicable treaties,

confidentiality,

cost,

speed,

interim remedies,

and enforceability.

For multinational guarantee structures, enforcement planning should occur before the contract is signed.

Practical Example: German Parent and Turkish Subsidiary

A Turkish subsidiary purchases EUR 8 million of industrial equipment.

The supplier requires the German parent to guarantee EUR 4 million of deferred payments.

A properly structured guarantee should address:

maximum liability,

covered invoices,

interest,

expiry,

contract amendments,

demand procedure,

governing law,

jurisdiction or arbitration,

and release.

The supplier should simultaneously consider where the German parent owns assets.

The parent should calculate its maximum group exposure before signing.

Practical Example: American Parent With Turkish Assets

A Turkish contractor defaults on a large project.

Its American parent guaranteed performance.

The parent also owns valuable shares in another Turkish company.

The beneficiary may need to determine whether the guarantee claim should first be litigated or arbitrated and how any resulting decision can ultimately be enforced against available assets.

Asset location can therefore materially affect dispute strategy.

Practical Example: Foreign Judgment Against Parent

A contract selects foreign courts.

The creditor obtains a final monetary judgment against the parent and discovers that the parent’s most accessible assets are in Turkey.

The creditor may need to pursue enforcement proceedings under Turkey’s international private-law framework before coercive execution can occur. (IBA)

Practical Example: Arbitration Award

The guarantee contains a valid arbitration clause.

The creditor obtains an award against the foreign parent.

Where the relevant requirements are satisfied, enforcement in Turkey may proceed within the New York Convention and Turkish procedural framework. (UNCITRAL)

Due Diligence Before Accepting a Parent Guarantee

A beneficiary should verify:

Exact guarantor → Corporate existence → Signatory authority → Financial strength → Assets → Existing debt → Guarantee cap → Duration → Governing law → Dispute forum → Enforcement jurisdictions.

A parent guarantee should be analyzed like a credit instrument, not simply a contractual appendix.

Due Diligence Before Giving a Parent Guarantee

The parent should investigate:

Underlying contract → Subsidiary exposure → Maximum guarantee liability → Amendments → Penalties → Damages → Duration → Internal approvals → Financing covenants → Cross-default → Governing law → Enforcement risk.

The parent should know its worst-case exposure before authorization.

Parent Guarantee Negotiation Checklist

The most important provisions generally include:

Guaranteed obligations

Maximum amount

Currency

Duration

Expiry

Demand procedure

Defenses

Contract amendments

Interest and costs

Release

Governing law

Jurisdiction or arbitration

Notices

Assignment

Cross-border enforcement

A short guarantee can create enormous financial exposure if these issues are ignored.

Frequently Asked Questions

1. Is a foreign parent company automatically liable for its Turkish subsidiary’s debts?

Generally, no. The parent and subsidiary are separate legal entities. Liability may arise where the parent separately assumes obligations, including through a parent company guarantee.

2. Can a Turkish creditor enforce a parent guarantee against a foreign parent?

Potentially. The procedure depends on the guarantee, governing law, dispute-resolution mechanism and location of the parent’s assets.

3. Should a parent guarantee have a maximum amount?

From the guarantor’s risk-management perspective, a clearly defined maximum liability is highly advisable.

4. Can the guarantee cover future company debts?

Potentially, depending on its wording and applicable law. Foreign parents should be particularly cautious about guarantees covering all present and future obligations.

5. Does changing the underlying contract automatically increase the guarantee?

Not necessarily. The answer depends on the guarantee terms, nature of the amendment and governing law.

6. Can a parent guarantee be subject to arbitration?

Yes, provided there is a valid arbitration agreement binding the relevant parties.

7. Can a foreign arbitral award against the parent be enforced in Turkey?

Potentially. Turkey applies the New York Convention to qualifying foreign commercial arbitral awards together with relevant domestic procedural rules. (UNCITRAL)

8. Can a foreign court judgment be enforced directly in Turkey?

Generally, coercive enforcement requires the applicable Turkish recognition and enforcement procedure. Law No. 5718 provides the principal statutory framework. (RM.coe.int)

9. Does selling the Turkish subsidiary automatically terminate the parent’s guarantee?

Not necessarily. The guarantee should contain an express release or expiry mechanism, and transaction documents should address existing guarantees during the sale.

10. What is the biggest cross-border risk?

The greatest practical risk is often a mismatch between contractual liability and enforcement planning: a company may issue a broad guarantee without considering where disputes will be heard and where its assets can ultimately be seized.

Legal Assistance for Parent Company Guarantees in Turkey

Parent company guarantees can provide valuable credit protection in Turkish commercial transactions, but they can also transfer substantial subsidiary risk directly to a foreign corporate group.

Before issuing or accepting a guarantee, the parties should determine exactly which company is the guarantor, which obligations are covered, the maximum liability, when the guarantee expires, what defenses remain available, which law governs and where a successful claim can actually be enforced.

Cross-border enforcement deserves particular attention. Foreign judgments require the applicable Turkish recognition and enforcement procedure before coercive execution, while qualifying foreign arbitral awards may benefit from the New York Convention framework. (IBA)

Fırat Fesih Kaya Law Office provides legal assistance to foreign investors, multinational companies, lenders, suppliers and corporate groups concerning parent company guarantees in Turkey, corporate guarantees, Turkish subsidiary debts, cross-border enforcement, international commercial contracts, foreign judgments, arbitration awards, guarantee disputes and corporate liability.

Legal assistance may include drafting and reviewing parent guarantees, limiting guarantee exposure, reviewing corporate authority, coordinating guarantees with underlying commercial agreements, structuring governing-law and dispute-resolution provisions, assessing foreign judgment and arbitral award enforcement and representing international companies in guarantee-related disputes in Turkey.

Phone: +90 312 434 22 22
Mobile / WhatsApp: +90 532 769 22 22
Email: info@firatfesihkaya.av.tr
Office: Mevlana Boulevard No:221, Yildirim Tower, Balgat, Cankaya, Ankara, Turkey

For multinational groups, the central principle is simple: a parent company guarantee should never be issued merely because the subsidiary needs contractual support. The group should know the maximum exposure, duration, defenses and cross-border enforcement consequences before the parent signs.